By Jose Kont *
The news of Silicon Valley Bank's fall has shaken global financial markets. What can we expect for the future of Central American startups?
Through Twitter, thousands of people have commented on the collapse of Silicon Valley Bank (SVB Financial Group) and its implications for entrepreneurs in the United States and venture capital funds.
However, what does this mean for Central American entrepreneurs and startups in the region?
It's essential to consider the context. SVB played a significant role in the US entrepreneurship ecosystem. It's important to remember that this non-traditional bank had very particular characteristics that led to its unfortunate demise:
- SVB was a bank specializing in startups and one of the most important venture capital financiers in Silicon Valley.
- Due to the macroeconomic situation experienced since mid-2022, the bank had seen a significant decrease in its deposits. Startups were spending their capital faster than expected, and many funds were hesitant to invest.
- Greg Becker, the bank's CEO, announced on Wednesday, March 8th, in a meeting with clients and investors that venture capital funding could continue to be limited in the short term. Coupled with comments circulating on Twitter, this triggered alarm bells for clients, who began to withdraw their deposits. Coincidentally, another bank had announced its collapse that same morning, making the topic sensitive when SVB announced the sale of some assets to obtain liquidity. What was intended as a measure to reassure investors was interpreted as a cry for help from the bank.
- On Thursday, March 9th, its shares plummeted 42% after announcing the sale of shares worth USD $1,750 million to bolster its balance sheet. The drop reached 62% a day later, prompting the regulator to close it down to prevent its market value from continuing to fall and to define a roadmap to protect its clients' money.
The collapse of SVB can impact opportunity-driven entrepreneurship ecosystems in Central America in various ways, particularly startups already pressured by the regional macroeconomic context.
Undoubtedly, startups that relied on SVB have faced a reduction in their access to financing. Although the bank was not well-known in Central America and probably most startups and ventures had no direct relationship, the problem lies in the fact that many investors are sensitive to the "herd effect" and will be more hesitant to invest. The fall of stock markets in recent months and media outlets that exacerbate fear with alarmist headlines do not help.
Certainly, problems in Silicon Valley will have unforeseen repercussions in Central America, as what happens in the United States often affects the region.
The important thing is to be more resilient, frugal, and work towards a long-term development vision. Regardless of whether the fall of Silicon Valley Bank has significant repercussions or not, our task is to ensure that we will move forward, even amidst adversity.
Jose Kont is a General Partner at Cuantico VC.